Can Public Sector Wage Bills Be Reduced?

This paper was commissioned for the NBER conference on "Fiscal Policy after the Financial Crisis" at IGIER-Bocconi University in Milan (Italy) in December 2011. We thank Ariane Salem for excellent research assistance. We also thank Andrea Bassanini as well as all the participants in the conference for their useful remarks. The opinions expressed and arguments employed here our responsibility and do not necessarily reflect those of our corresponding institutions or the National Bureau of Economic Research.